HBA-DMD C.S.H.B. 3186 76(R)BILL ANALYSIS Office of House Bill AnalysisC.S.H.B. 3186 By: Longoria State Affairs 5/6/1999 Committee Report (Substituted) BACKGROUND AND PURPOSE Currently, on most public work, the state requires that a business demonstrate its ability to satisfactorily complete the job it was contracted to do through a bond, which is a form of selfinsurance in which a business agrees to compensate the state if the job is not done correctly. Obtaining these bonds may prove difficult for a small business and may preclude it from successfully bidding on public work. C.S.H.B. 3186 requires the General Services Commission (commission) and each agency whose project has certain exemptions to jointly or separately enter into a competitively bid contract with a surety or an insurer that has experience in surety bond support services, under which the surety or insurer is required to perform certain specified functions. This bill requires the commission and an agency whose project has certain exemptions to require a contractor or subcontractor to meet part or all of the bonding or insurance requirements for the project under the contract. In addition, this bill requires the commission or other state agency entering into a contract with a surety or insurer to conduct annual program audits and performance reviews under the contract. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that this bill does not expressly delegate any additional rulemaking authority to a state officer, department, agency, or institution. SECTION BY SECTION ANALYSIS SECTION 1. Amends Section 2166.258, Government Code, as follows: Sec. 2166.258. COMMON SURETY OR INSURER. Requires, rather than authorizes, the General Services Commission (commission) and each agency whose project is exempted from all or part of this chapter under Section 2166.003 (Exemptions), Government Code, to jointly or separately enter into a competitively bid contract, rather than to negotiate an arrangement advantageous to the state, with a surety or an insurer that has experience in surety bond support services, under which the surety or insurer is required to: (1) aggressively assist historically underutilized businesses (HUB) and small businesses in order to obtain the bonds or insurance required to qualify for a contract or subcontract on a project administered by the commission or other agency; and (2) furnish the required bonds, insurance, or both to HUBs, small businesses, and other business, rather than to furnish bonds, insurance, or both that a contractor or subcontractor is required to execute or carry to receive a contract or subcontract on a project administered by the commission or other agency. (b) Requires, rather than authorizes, the commission and, rather than or, an agency whose project is exempted from all or part of this chapter under Section 2166.003, to require a contractor or subcontractor to meet part or all of the bonding or insurance requirements for the project under the contract entered into under Subsection (a), rather than for the project under the arrangement negotiated, by the commission or other agency. (c) Provides that the contract must: (1) be renewed at least once each state fiscal biennium; (2) require the surety or insurer to aggressively take steps to furnish required bonds, insurance, or both to HUBs and small businesses; and (3) provide that the surety's or insurer's performance under the contract will be evaluated at least in part on the basis of the number of HUBs, small businesses, and other businesses that obtain the required bonds, insurance, or both from the contractor. (d) Requires the commission or other state agency entering into a contract with a surety or insurer under Subsection (a), to conduct annual program audits and performance reviews under the contract. SECTION 2.Effective date: September 1, 1999. Makes application of this Act prospective, as it applies to a contract between a state agency and a surety or an insurer. SECTION 3.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE This substitute differs from the original in the caption by providing that this substitute relates to obtaining bonds and insurance required for certain state construction projects, whereas, the original bill relates to changes in the Government Code regarding surety and bonding. This substitute further amends Section 2166.258, Government Code, in SECTION 1, to require the General Services Commission (commission) and each agency whose project is exempted from all or part of this chapter under Section 2166.003 (Exemptions), Government Code, to jointly or separately enter into a competitively bid contract with a surety or an insurer that has experience in surety bond support services, under which the surety or insurer is required to perform specified actions. The original bill authorized the commission or an agency whose project is exempted from all or part of this chapter under Section 2166.003, Government Code, to negotiate an arrangement with a surety or an insurer that has experience in surety bond support services and owner controlled insurance programs, in order to furnish bonds, insurance, or both that a contractor or subcontractor is required to execute or carry to receive a contract or subcontract on a project administered by the commission or other agency. This substitute further amends Subsection (b) to require the commission and, rather than or, an agency whose project is exempted from all or part of this chapter under Section 2166.003, to require a contractor or subcontractor to meet part or all of the bonding or insurance requirements for the project under the contract entered into under Subsection (a), rather than for the project under the arrangement negotiated, by the commission or other agency. This substitute deletes text that was added in the original, which set forth that it is the will of the legislature that administration of this program be put up for public, competitive bid and that the contract be renewed each biennium. This substitute also deletes text added to the original to provide that the recipient of this contract will be charged with running the program but must demonstrate capability to report performance measures and be subjected to annual reviews and audits. This substitute adds proposed Subsection (c), to set out the requirements of a contract entered into under Subsection (a). For further explanation, please refer to the Section-by-Section Analysis in this document. This substitute adds proposed Subsection (d), to require the commission or other state agency entering into a contract with a surety or insurer, to conduct annual program audits and performance reviews under the contract. This substitute replaces the short emergency clause and the effective date in SECTION 2 with a new effective date (September 1, 1999) and a prospective clause. This substitute adds SECTION 3 (emergency clause).